Is Bridgeport trying to bolster bankruptcy case by spending?

WATERVILLE VALLEY, N.H. -- The mayor of Bridgeport, Conn., saw her city's bankruptcy petition rejected Aug. 1 by a federal judge who ruled the city did not meet an insolvency test, but some observers say the mayor has begun a campaign to pass that test by attempting to spend the city's $27 million cash balance.

"In my opinion," said city Alderman Thomas J. White in a telephone interview yesterday, "there is clearly some strategy being plotted here."

Mr. White speculated that Mayor Mary C. Moran's move could be designed to give the city a stronger hand if it attempts to appeal the rejection of its bankruptcy petition.

"If the state comes back and says you can't use that money," Mr. White said, "the city is insolvent."

Bridgeport, which on June 6 became the largest city to use Chapter 9 of the federal Bankruptcy Code, has until Sept. 3 to appeal the ruling that U.S. Judge Alan H.W. Shiff used in dismissing the city's filing.

Mr. White is not the only city alderman to view the mayor's actions as a means of reviving the city's failed bankruptcy bid.

Common Council member John F. Stafstrom Jr. said in a telephone interview yesterday that the mayor's motives are political. "She is up for re-election," he said, "and there is a feeling that she will do whatever is necessary to get re-elected, including spending funds where they should not be spent."

Both the Common Council and the Financial Review Board could block any attempt by Mayor Moran to increase spending or to use cash balances to close the city's budget gap, sources said.

Bridgeport faces a gap estimated at $16 million and growing in the current year's $320 million spending plan. But it also has a cash balance of about $27 million.

In letters last week to Gov. Lowell P. Weicker Jr. and William J. Cibes Jr., the state budget chief and director of the Bridgeport Financial Review Board, Mayor Moran said the city will use the cash balance, most of which is the result of a 1989 deficit bonding, to close the city's budget gap.

City attorney Barbara Brazzel-Massaro said the Aug. 1 ruling that found the city not insolvent -- in part because of the cash reserves -- justifies spending that money to bridge budget gaps, according to The Bridgeport Post.

A spokeswoman for Mayor Moran explained the letters as merely an effort "to keep people even more informed than in the past."

One city official who requested anonymity said that as far as he knew the mayor had not yet decided whether to appeal Judge Shiff's ruling. "I'd hate to say there's any decision one way or the other," he said. "There's only confusion on both sides." He added that city and state officials would likely meet repeatedly over the next three days to discuss solutions to Bridgeport's problems.

State officials were busy late yesterday as the state House of Representatives went into a special session to consider legislation including a repeal of the state's recently enacted income tax.

But early in the morning Gov. Weicker and Mr. Cibes found time to meet in Hartford with Mayor Moran, according to Douglas M. Cutler, under secretary of the state's Office of Policy and Management.

Mr. Cutler, who also attended the meeting, said Mr. Cibes told the mayor her plans were "not in accordance with the budget provisions" of 1988 state legislation that set up a state oversight board for Bridgeport's finances.

Under that legislation, the city's roughly $25 million cash buffer is intended as a liquidity reserve to prevent short-term borrowings, not as a means of balancing budgets.

While Mr. Cutler said the city and state had begun to devise plans related to economic development in Bridgeport, he also conceded that "it was not made apparent by the mayor that she would withdraw her plans" as a result of yesterday's meeting.

In addition to announcing her intentions to spend city cash reserves, Mayor Moran last week announced she would increase spending by hiring an additional 100 policemen. The mayor said the need for more police, at a cost of $2.5 million this year, became clear after a recent spate of murders.

"Since August 1st," the mayor wrote in her letter to the governor, "nine homicides have been recorded, bringing this year's total to an alarming 29, the highest in the state."

The mayor's letter called on Gov. Weicker to use state funds to pay for the additional police officers. "Governor, I know the seriousness of the state's fiscal plight, but this safety emergency warrants immediate attention," the mayor wrote in her letter, which is dated Aug. 19. The mayor said that in part because of a recently discontinued state program called Save Our Streets, Bridgeport has lost its ability to maintain public safety.

Mayor Moran invoked arguments that the state made in countering Bridgeport's bankruptcy filing. "Attorney General Blumenthal clearly stated in the bankruptcy proceedings that the state should be given the opportunity to work with and assist the city of Bridgeport," the mayor said. "That time has come!"

Gov. Weicker was considering the request, but had not decided on it yesterday, Mr. Cutler said. He added that the governor saw the city's bankruptcy filing as antithetical to attempts to enlist additional state aid. But, he said, Mayor Moran did not agree to shelve the city's bankruptcy bid.

The mayor intends to draw $2.5 million from the city's cash balances if the governor does not offer to pay the bill, sources said.

But the state's affirmation yesterday of its position that the cash is off limits could help the city in appealing the Aug. 1 ruling that halted its bankruptcy petition.

If the city does not appeal that ruling, it could also file a new petition, according to Jeffrey Cohen, a Denver-based bankruptcy lawyer. Mr. Cohen said Bridgeport's apparent plan is to prove it is actually insolvent or spend its money until it meets the insolvency test that Judge Shiff established in his Aug. 1 ruling -- that the city be able to predict default in its current fiscal year, or the coming year for which a budget has been adopted.

Mr. White said, "They're going to say, 'we need a hundred policemen, and we're going to pay for it and go broke. If you don't like it, tough.'"

And Mr. Cohen said the city could succeed. "The whole social fabric is falling apart," he said, adding that the key would be proving that the city actually needs to hire more policemen than it now employs.

Mr. Cohen said the state's position that Bridgeport cannot touch its $25 million in cash reserves was "not fair." While in court, Attorney General Richard Blumenthal and other lawyers for the state cited that residual balance as evidence the city was solvent. But now, state officials seem to be forbidding the city to use the money to bridge budget gaps.

"That's the fundamental contradiction," Mr. Cohen said. "You can't hold the city hostage to Wall Street. I think there's a real contradiction in the state's position."